This paper proposes a design framework of Product-Service Systems (PSS) using both functional modelling and service activities. In the functional modelling of PSS; the function decomposition approach is used with specification of service providers and service receivers. The overall function of PSS is decomposed into various sub-functions and service providers/receivers are also decomposed into sub-providers/receivers; which are later appropriately assigned to sub-functions. Each sub-function is linked with the service activities based on the information on its service providers and receivers. The linkage between sub-functions and service activities is represented in the modified service blueprint through the introduction of the function layer. The pairs of sub-functions and service activities are mapped to product and service elements to produce PSS concepts. Case studies are conducted to confirm the applicability of the proposed methodology for effective PSS design.